Meet the Goldfinch Finance!

4 min readSep 26, 2021

Let me introduce you to Goldfinch Finance — the next generation of Crypto Loans!

What is the Goldfinch?

Goldfinch is a DeFi protocol that was invented as a tool to provide crypto loans but using the biggest missing way: crypto loans without collateral. The main idea is to provide the possibility to be a lender to everyone and give crypto lending to everyone who has such kind of need around the world. We believe the protocol will be a kind of bridge between lenders, who want to earn, and the borrowers, who want to use all possible ways to raise and grow. As an example, we’ve already provided $1M in capital to emerging clients across Mexico, Nigeria, and Southeast Asia since our launch in December.

What is the problem with collateral?

As mentioned above, Goldfinch provides crypto loans without collateral. But why the protocol was invited for such kinds of loans? The main problem is overcollateralized of all current lending protocols. It’s a “stoplight” for the vast majority of borrowers in the world since they have to put up ~$1.50 of another asset first for every $1 they would like to borrow.

So, what does the Goldfinch protocol offer? Instead of collateral, Goldfinch uses the “trust through consensus” mechanism to allow borrowers to show their creditworthiness based on the collective assessment of other participants. So, the protocol can use this collective assessment as a reason to allocate capital automatically. Using this way to provide loans, the protocol increase amount of both the borrowers and capital providers around the world

Roles

To make the idea of loans without collateral real, the Goldfinch protocol created four core roles of the protocol participants:

Borrowers
Backers
Liquidity Providers
Auditors

Let’s do a quick overview of each of the roles.

Borrowers

Borrowers are participants who want to borrow finance, and they propose Borrower Pools for the Backers to check. Borrower Pools contain the terms a Borrower seeks, like the interest rate and repayment schedule.

Backers

Backers are participants who assess the Borrower Pools and decide whether to provide capital. After Backers provide capital, Borrowers can borrow and repay through the Borrower Pool.

Liquidity Providers

Liquidity Providers are participants who provide the capital to the Senior Pool in order to earn passive income. The Senior Pool uses the Leverage Model to automatically allocate capital to the Borrower Pools, based on how many Backers are participating in them. When the Senior Pool allocates capital, a portion of its interest is reallocated to the Backers. This increases the Backers’ effective yield, which incentives them to both provide the higher-risk first-loss capital and do the work of assessing Borrower Pools.

Auditors

Auditors are participants who vote to approve Borrowers, which is required before they can borrow. Auditors are randomly selected by the protocol, and they provide a human-level check to guard against fraudulent activity.

Well, now we have basic knowledge about the participants of the Goldfinch protocol, great! Now, let’s dive a little bit into how the protocol actually works.

How the Goldfinch flies?

The protocol works by providing pool access to lending businesses. These businesses use access to use stablecoins from the pool, then exchange it for fiat and then provide to the local markets. Working this way, the protocol provides access to the crypto to the global markets and leaving the actual loan origination and servicing to the businesses best equipped to handle it on their own local markets at the same time.

Okay, but how about investors?

From an investor perspective, each investor can deposit crypto-assets into the pools to earn yield. As the borrowers make their interest payments back to the protocol, they’re immediately disbursed to all investors.

You can check active Borrower Pools and their APY and state of the Senior Pool as well on the official Goldfinch app site: https://app.goldfinch.finance/earn

Check out this overview diagram that describes relations between liquidity providers and lending businesses on the high level:

You can (actually, you must) find more details in the Whitepaper, where you’ll find detailed descriptions of each participant’s role, diagrams, .etc: https://goldfinch.finance/goldfinch_whitepaper.pdf

What’s next?

We’re only at the start line of our journey and the idea we follow is to create a DeFi loans platform that allows anyone to be a lender, and here is our plan for how we will go:

Join us!

Join us on Discord, reach out on Twitter, and subscribe for updates. We’re also hiring!

Currently, we are on our way to build a strong global community, that will help us to achieve our goals and build a great product, so we need you to take a part in our journey. Looking forward to seeing, how it’ll come!

Join to the team, that was highly assessed by the amazing group of backers and advisors: